Arvind to demerge apparel, engineering businesses

After having demerged its real estate business, $1.5-billion conglomerate Arvind Ltd is now carving out its branded apparel and engineering businesses from the parent company.

Sanjay Lalbhai, chairman and managing director, Arvind Ltd

Arvind Fashions Ltd (AFL) will be the demerged entity for branded apparel business while the engineering business will come under Anup Engineering Ltd (AEL).

The company board has approved the demerger and it expects this exercise to complete in the next eight to nine months, after which the two companies will get listed on BSE and NSE.

For every five shares of Arvind with face value of Rs10, shareholders would get one share of Arvind Fashion (branded business) with face value of Rs4. They will also get one share of Anup (engineering business) of face value of Rs10 against 27 shares of Arvind.

According to the management, the listing of these entities would take eight months.

While the demerger is expected to unlock value for shareholders, Arvind's shareholders may not see significant price appreciation after the demerger of its branded apparels and engineering businesses, according to The Economic Times, as the current share price seems to reflect the post-demerger scenario.

The demerger is expected to unlock value of the branded apparel business which is growing at a faster rate than the rest of the business and hence can command higher valuation. Arvind is India's largest denim manufacturer.

Sanjay Lalbhai, chairman and managing director, Arvind Ltd, said the realty business (Arvind SmartSpaces) got demerged two years ago and its performance has exceeded expectations.

"Arvind Fashions and Anup Engineering will also pursue their independent courses. Arvind Fashions has already demonstrated an industry-leading track-record in the branded apparel and accessory space. And Anup has demonstrated an impeccable trajectory on customer delight, topline growth and profitability. Financial independence will help unlock the full potential of these businesses," said Lalbhai.

The branded apparel business is growing at 25 per cent compounded annual growth rate (CAGR) and is one of the fastest growing apparel and accessory businesses in the country, the company said.

Engaged in the manufacturing of critical process equipment, Anup Engineering has been consistently growing at 25 per cent and delivering a robust financial performance company management said.

Former Enam / Axis investment banker Pankaj Jaju, founder and chief executive officer, Metta Capital Advisors LLP, acted as financial advisors to the transaction while Walker Chandiok & Co LLP acted as independent valuers and provided the share allotment and share exchange ratios.

The demerger, Arvind's management said, frees up resources and allows renewed focus on textiles business, which is not only the foundation but is well-placed to achieve an accelerated growth trajectory. In fact, over next three to four years, there are plans to invest Rs1,500 crore and transform the textile business.

"We will do this by focusing on three engines of growth and transformation, namely vertical integration - creating garment manufacturing to become an end-to-end solution provider and strategic supply chain partner to the world's most successful brands and retail concepts; next-generation products – redefining textiles by focusing on path-breaking technologies and manufacturing processes like multi-functional textiles and smart-enabled wearables and advanced materials; enable textiles to catalyse the company's entry into fields like human protection, industrial process, infrastructure and transportation, and thereby build a business with high entry barriers, intellectual property creation and high returns," said Lalbhai.

He said the focus will not only be to grow at an accelerated pace but also drive better return on investments and build a business model that is future-ready.